Thursday, 12 March 2020

Democracy is the least worst option but it does present us with some dodgy choices

The fact that democracy has its faults was brought home to me again reading newspaper coverage of the US presidential election. It looks like that election will be a run off between 77 year old Joe Biden and 78 year old Bernie Sanders, both of whom would have ticked off another year by the time they assumed the presidency were they to be elected, followed by a run off against a youngster:73 year year old Donald Trump. "Two old white guys fighting to take on another old white guy - so much for diversity" as Irwin Stelzer said in his Sunday Times column this weekend.

There isn't much need for me to rehearse why Trump and the Corbyn doppelganger Sanders are unsuitable candidates for the next POTUS. But isn't Biden at least inoffensive and moderate?  Mainstream US news sources note that Biden has moved a long way to the left since he was Obama's veep. I'm not talking Fox News here or right wing leaning media. The Boston Globe, long considered a socially progressive organ and a strong supporter of the Democratic party, claimed* Biden would be "the most liberal Democrat ever nominated for the presidency", if that happens. "By any understanding of 'moderate', as that term was used when Obama or Bill Clinton was president, Biden is no moderate" they said.

Admittedly the Globe branding Biden "liberal" and saying that he is running on "a far more progressive, i.e. far less moderate" platform than any Democratic presidential nominee in history" is using these terms in an American context. Several of their examples of Biden's lurch to the left don't sound very left to a Brit, even one who voted Tory last time round. Examples they gave to back up their case included moving left on abortion, the death penalty, free trade and a national minimum wage of $15 an hour. None of this sounded particularly left to me. They also cited his support for the Green New Deal, championed by Democrat lefties such as the firebrand (I nearly said nutjob) Alexandria Ocasio-Cortez. While not claiming to be an expert on the Green New Deal I note that there isn't a single coherent set of actual policies underpinning that headline, so it's not particularly a problem for Biden to support something that isn't defined at this stage.

Other examples did seem leftish: Biden supports government-funded health care even for unauthoritzed immigrants, something Obama never came close to proposing and he supports a sharp increase in US refugee admissions and a path to citizenship for all undocumented immigrants. By contrast when Obama ran for the White House in 2008 it was as an enforcement-first hard-liner. He cracked down so hard on those who crossed the border illegally, he was known for much of his presidency as the "deporter-in-chief".

But the simple fact is that, like Labour, the Democratic Party has been hijacked by the likes of Sanders and AOC and has moved significantly to the left. That has pulled candidates like Biden across but his values and principles probably remain unaltered. We could expect that, if elected president, he would revert to his natural liberal but centrist inclinations. Given a choice between Biden and Trump I would normally say Biden, even though I have traditionally favoured republican candidates for the post. (This got me into some interesting discussions with colleagues when I travelled frequently on business to Boston, where the only professed republican supporter in my company's operation there was the subsidiary company president, who was viewed as some kind of redneck by his liberal minded team.)

However, it was Niall Ferguson's Sunday Times column this weekend that had me wondering how a robust democratic system such as that of the United States could end up offering such a poor choice of candidates for such an important post at what feels such an important time for the world. Ferguson knows Biden well enough to have a "good chat" when they run into each other, but has been wondering if Biden has been severely diminished by age or even an unpublicised stroke. He had already noted numerous examples of Biden losing his train of thought and stumbling over his words when he heard what Biden had to say last week at a campaign event in Texas, two days after his win in South Carolina, which triggered his super Tuesday wins last week. These wins reignited Biden's campaign and made him more of a comeback kid than the comeback kid himself, Bill Clinton. This is what Biden said to his supporters:

"We hold these truths to be self-evident. All men and women are....created by the know, the thing."  Eh?

Biden might have been trying to rephrase Thomas Jefferson's preamble to the declaration of independence, which goes:

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their creator with certain unalienable rights, that among these are life, liberty and the pursuit of human happiness." Which of course doesn't mention women. So if Biden was trying to repitch Jefferson's statement for the modern, identity-conscious, ear he might have got confused between what he intended to say and Jefferson's words which are pretty much drummed into most American schoolchildren. But I doubt "you know" was in Jefferson's lexicon and "the thing", whatever that is, certainly wasn't.

It's hard to avoid ageism here, but as I'm old I'll go ahead. Reagan was considered old to stand for president but he became probably one of the most effective two US presidents in my adult years (the other being sleazeball Clinton). Reagan and Trump were much the same age at the start of their presidencies. Biden and Sanders are already older than Reagan was when he left office after two full terms. 

The system the US uses to select presidential candidates gives much more power to everyday punters in deciding which candidate represents a party, compared with our system of choosing party leaders where party members get to choose between candidates who have already gone through some sifting. Indeed the American parties can be stuck with candidates they really didn't want. I've always felt our system makes more sense because it has to be chosen from MPs who have already had to command public support in an election who then have to gather sufficient support from people who know them and what they are like. In the US you can join a party and then announce you're running for president. It doesn't matter if, like Trump, you've never run for or held any other public office.

Our system could have given us prime minister Corbyn and the Americans will end up with a choice between Trump and (probably) Biden or Sanders. The American system has more checks and balances on the powers of the president than our prime minister sees. It seems to me to they have a greater degree of delegation to cabinet members who are not necessarily experienced politicians (they are nominated by the president) but they have to be confirmed by the upper house (the Senate) and sometimes aren't. As a result the American system has a much greater separation between the legislature and the executive, which is somewhat blurred at times in our unwritten constitution.

I guess both systems generally work quite well in their own way. But neither of them can cope with a dearth of suitable quality candidates. The British system seems better at enabling a candidate to build up experience and profile. Unless they get into the cabinet, national American politicians (senators and representatives) and local politicians (governors and mayors) seem to have no career progression path to help them build a challenge. When the presidential race starts the party that doesn't hold the White House always seems to have a plethora of candidates, most of whom hardly anyone has heard of. I checked the list this time** and there were over 250 democrats who declared they were a candidate for the presidency and filed with the Federal Election Commission, of which 29 ran some kind of campaign. Admittedly some did that to draw attention to specific issues, including 89 year old Mike Gravel who stood after 3 students started a "draft Gravel" movement and decided to run to draw attention to nuclear non-proliferation and non-interventionist foreign policy, even though he probably would never have qualified for the primaries. Not quite the American equivalent of Screaming Lord Sutch: they have those too amongst the 250 but they generally don't get anywhere near the ballots. Of the 29, 11 didn't put their name forward for the ballots and a further 7 did but withdrew before the ballots started. That still left 11 campaigning actively when the race kicked off in Iowa, of which there are three still going. (The third is a Hawaiian member of the US house of Representatives, Tulsi Gabbard. It's not clear why she is still running as she has 2 delegates to Sanders's 710 and Biden's 864. Elizabeth Warren had 70 when she pulled out. Maybe Gabbard can't count, though the finish line is 1991 delegates, so Biden isn't actually half way there yet).

What I found remarkable was the limited number of those candidates who were aged between 40 and 60 who got through to fight on the ballots: only 3 of the 11 were in that age bracket. Which left Americans choosing between the relatively elderly and the young and inexperienced, like 38 year old Pete Buttigieg, mayor of South Bend, Indiana which has a population of barely 100,000. I'd only just found out how to say his name properly by the time he pulled out.

Is there a problem when, even with these large fields of candidates, voters are left mentally ticking the box "none of the above?" Churchill is credited with saying "democracy is the worst form of government besides all those others that have been tried from time to time"***.  It currently seems to be giving us poorer and poorer leadership candidates. In the context of this year's US election, Irwin Stelzer predicted that "Voters will pay careful attention to the quality of vice-presidential selections as two vulnerable septuagenarians violate every anti-virus protocol by plunging into crowds, hugging, shaking hands".

Hmm, will voters do that?  But I do hope Biden has a competent veep if he were to become president......

** The Atlantic. The 2020 US Presidential Race: a cheat sheet;
A good crib sheet with snippets on all the candidates and some up to date news

*** Indeed he did say it, but prefaced it with "it has been said" so he wasn't claiming the statement as his own

Tuesday, 10 March 2020

The UK is too taxing

Rishi Sunak will present his first budget tomorrow. At least, unlike the Saj, he gets to wave the red box outside no 11 and drink something other than water in the House. His job will be to definitively end austerity (whether or not you believe we actually had real austerity) while not scaring the horses, in terms of the already spooked financial markets and leaving some scope for tackling the unfolding coronavirus epidemic.

As a financial conservative I fear that the UK is about to get even more taxing, the overall tax take at 34.4% of national income already being the highest since it was on the way down after the peak levels of the second world war*. But that is better than bequeathing even larger debt to the next generations, as well as a congested, polluted planet and a very limited carbon budget. However, as Johnson's government seems to have no ambition whatsoever to be a low-tax party despite their characterisation by some as a very right wing government (eh?) I accept that reducing the tax burden isn't on the agenda at the moment: I just hope to see a limited or zero net increase.

We'll see how Rishi does. A chancellor's first budgets are often their best chance at making significant reforms. The longer they are in office the more they seem to get constrained by their previous decisions. But as Rishi hasn't been there long and the scene is pretty well already set (tweak the rules to spend as much on infrastructure as can feasibly be spent, prepare for stage 2 of Brexit and coronavirus) maybe we shouldn't expect a really radical budget.

If I had my way the best thing the chancellor could do would be to throw away the whole tax structure and start again. Why? Because the UK's tax code, having overtaken India's in size in 2009 at 11,250 pages had, by 2016 grown like Topsy to 17,795 pages. More than 10 million words, 12 times the size of the King James bible.

I found an esoteric article written on behalf of the Office for Tax Simplification in 2012** which noted that the Yellow Tax Handbooks (it was once one book, then two and then five) included duplicated material, explanatory footnotes and the text of various Finance Acts so actually a bit less than 35% of it was actually "substantive, unduplicated administrative legislation". Still equivalent to 5430 pages even then.

But some Orwellian characters clearly took over the Tax Simplification task - or maybe it was just that George Osborne became chancellor - so our tax code got even bigger. I've read somewhere that it now runs to 22,000 pages. One of the reasons is that governments can tweak the tax code as part of the annual Finance Bill without other primary legislation - indeed often without actually announcing it in the budget statement, people find out about it afterwards trawling through the pages of bumf. Gordon Brown pioneered this type of stealth tax by stealth. Another reason, as David Smith has pointed out, is that complexity increases as a result of parties having to avoid breaking manifesto pledges on headline tax rates. Brown and Osborne were outstandingly good (well, bad actually) at all of this.

The result is a system that is far too complex and riddled with unfairness which only encourages avoidance. Loopholes are harder to find if tax is levied on a simpler, progressive basis. Too many reliefs and allowances clutter the system. Pensions and inheritance tax are so complicated some professionals won't advise on them.

I've written before about the horrendous pension taper, which is behind the nonsensical situation in the NHS where consultants have had to limit their hours or have even decided to retire early to avoid inadvertently triggering punitive immediate tax charges amounting to tens of thousands of pounds. I realise these folk earn well in excess of £100k but the laws of human behaviour are immutable: why on earth should they bother working only to get financially punished for it? Boris Johnson said this would get sorted (we'll be watching) and it needs to be sorted properly not just for NHS consultants.

My tax manifesto would look something like:

  • consolidate national insurance into income tax, thereby avoiding the anomalies where some low earners pay national insurance but don't gain from tax credits (as they don't pay income tax) resulting in high marginal rates of tax for some of our least well off. This would also effectively scrap the upper limit on NI, thereby effectively increasing the tax rate for higher earners
  • in return scrap the ridiculous pension taper (which also produces very high marginal rates of tax) and the lifetime limit for pensions which discourages higher earners from saving for their retirement
  • I would consider making tax relief available for paying into pensions at basic rate only, though this presents some complexity for tax collection and payrolls on which I'd want to see some proper analysis. Many chancellors have looked at this change, which would only hit higher rate taxpayers, but would bring in several billion. It will probably happen one day, so why not as part of a simplification package? 
  • if the above change made sense I would increase the annual limit for paying into a pension and increase significantly the starting rate for higher rate tax, as many folk in very ordinary occupations now pay higher rate tax, which can't be right
  • for other taxes I'd start from a "zero budget" approach of scrapping all allowances and reliefs and keeping only those that can be justified as genuine investment of taxpayers money. R&D reliefs for business might be an example, but they can be abused so I'm a sceptic
To make these changes command widespread support there might have to be a decrease in the basic rate of income tax. Part of the problem with reform is that there are winners and losers. If you aren't to have too many losers you end up with a tax giveaway just to make the change. This might not be affordable at the moment when the government wants to spaff our money up the wall (sorry but as both Johnson and Corbyn have used this phrase I assume it's now normal political speak) on expensive projects with dubious paybacks like HS2, Northern Powerhouse stuff and "levelling up". (That's not to say I disagree with those projects but they may not prove to be very good investments, at least for a very long time indeed).

The Hong Kong tax code (in its entirety) is just 350 pages. Maybe we could get ours to 3500?

I live in hope but not expectation....... This article led on the fact that the top 1% of earners now contribute more than 30% of income tax receipts, up from 24% in 2007-08. Golly we depend on those much maligned high earners to pay for our public sector......

** This article was written on behalf of the Office for Tax Simplification: does that count as an oxymoron?